Nordson Corporation — Form 10-Q Summary
Reporting period: Third quarter and nine months ended July 31, 2022; fiscal year ends October 31. Nordson makes precision technology products serving industrial, medical, electronics and other markets. The filing reports two segments: Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS).
Financial performance
| Metric | Three months ended July 31, 2022 | Nine months ended July 31, 2022 |
|---|---|---|
| Sales | $662.1 million, up 2.4% year over year | $1,906.7 million, up 8.2% |
| Gross margin | 55.2%, versus 56.5% | 55.8%, versus 56.3% |
| Operating profit and margin | $184.9 million; 27.9%, versus $188.3 million and 29.1% | $524.8 million; 27.5%, versus $463.7 million and 26.3% |
| Net income | $141.8 million, versus $142.2 million | $371.9 million, up 8.1% |
| Diluted EPS | $2.45, versus $2.42 | $6.37, up 8.7% |
| Operating cash flow | Not presented for the quarter | $339.7 million, versus $375.5 million |
Quarterly sales growth reflected organic volume growth of 3.9% and acquisition contribution of 3.5%, offset partly by a 5.0% adverse currency effect. For the nine-month period, organic volume grew 8.4%; acquisition and divestiture effects added a net 3.1%, while currency reduced sales by 3.3%.
Quarterly margin pressure reflected unfavorable mix, currency and inflation in materials, labor and logistics. Nine-month operating margin improved on organic growth and selling and administrative leverage, despite lower gross margin and adverse mix and currency effects.
ATS sales were $320.9 million for the quarter, up 6.5%, with 9.6% organic growth. IPS sales were $341.2 million, down 1.2%, as organic sales fell 1.1% and currency headwinds offset acquisition contribution.
Cash, debt and liquidity
- Cash and equivalents were $128.7 million at July 31, 2022, down from $300.0 million at October 31, 2021.
- Total debt carrying amount, including current maturities, was $803.4 million, versus $817.5 million at fiscal year-end. Current maturities rose to $401.7 million, principally because the €270.7 million euro loan due in 2023 was classified as current.
- Nine-month operating cash flow was $339.7 million. Working-capital changes used $125.6 million, primarily reflecting higher receivables and inventory.
- Investing activities used $210.6 million, including $171.6 million for the NDC acquisition and $39.4 million in capital expenditures. Financing activities used $294.4 million, including $233.8 million for treasury-share purchases and $88.7 million in dividends.
- Management said cash, operating cash flow and available financing were sufficient for anticipated needs, including the proposed CyberOptics acquisition. The company reported compliance with debt covenants.
Material changes and unusual items
- Nordson acquired NDC Technologies on November 1, 2021, for approximately $171.6 million net of cash. NDC was included in IPS; its reported results were not material to consolidated results.
- A second-quarter pension annuity transaction transferred obligations for approximately 1,500 retirees and beneficiaries to Prudential. It generated a $41.2 million non-cash pretax settlement loss and a $32.5 million after-tax effect, or $0.56 per diluted share, in the nine-month results.
- In the third quarter, the company changed the inventory costing method for certain U.S. inventory from LIFO to FIFO. It applied the change through a cumulative adjustment to cost of sales and did not restate prior periods because the impact was not material.
- On August 7, 2022, Nordson agreed to acquire CyberOptics for $54 per share in cash, approximately $380 million net of cash acquired. Closing remained subject to shareholder, regulatory and other customary conditions.
- A three-segment reporting structure—Medical and Fluid Solutions, ATS and IPS—became effective August 1, 2022.
- The board approved a 27% increase in the quarterly dividend, from $0.51 to $0.65 per share, beginning with the September 2022 payment.
Outlook, risks and management commentary
Management forecast fiscal 2022 revenue growth of 8% to 9% year over year, despite significant currency headwinds, and EPS growth versus fiscal 2021. Backlog entering the fourth quarter exceeded $1 billion, with extended requested shipment dates and large customer orders in electronics, industrial and medical markets. The filing provides no specific EPS growth target.
Management cited inflation, supply-chain disruption, unfavorable product mix and foreign exchange as pressures. COVID-19 restrictions in China had weighed on second-quarter Asia-Pacific growth; management said China sales recovered in the third quarter as restrictions eased. The filing also identifies economic and market conditions, currency movements, trade and tax policy, geopolitical events including the Russia-Ukraine conflict, pandemics, and acquisition execution as risks. Nordson said pending and potential litigation and environmental matters were not expected to cause a material adverse effect beyond amounts accrued, while noting environmental estimates remain subject to uncertainty. Disclosure controls were reported effective as of July 31, 2022.
Investor verification points
- Check subsequent results against the 8%–9% fiscal-year revenue outlook and the reported backlog above $1 billion.
- Assess whether gross-margin pressures from mix, inflation, logistics and currency persisted, and whether organic growth translated into operating leverage.
- Review cash conversion and working-capital trends, particularly the increase in receivables and inventory and the decline in cash.
- Track the 2023 euro-loan maturity, refinancing or repayment plans, and funding for the CyberOptics transaction.
- Confirm CyberOptics closing, purchase-price funding and integration progress; the transaction was pending at the filing date.
- Consider the $41.2 million pension settlement charge when comparing reported nine-month earnings with underlying operating performance.